More On Minimum Purchases, Surcharges, And Other Credit Card Merchant Agreement Violations, From The Companies Themselves

By alexchasickJuly 30, 2008

We’ve posted a lot of stories of businesses requiring customers who pay with a credit card to make minimum purchases, or pay a surcharge, or show ID. And as we’ve repeatedly said, the businesses’ merchant agreements with the credit card companies forbids these practices. A reader wrote in to argue that this might not be true, as many businesses contract with third-party credit card processors, and are not bound by the merchant agreement. So we did some investigating.

There’s a lot of information below, so here is an executive summary:

Regardless of who the merchant uses to process credit card transactions, merchants that add a surcharge or require a minimum purchase to accept a Visa or MasterCard credit or debit card are violating their merchant agreement, and you should report them to the bank that issued your card.

American Express does not forbid minimum purchase requirements, but they require parity with the other credit cards, so a minimum purchase requirement just for American Express, but not for Visa, is not allowed. American Express does not allow surcharges, unless they are assessed as a convenience fee…

Convenience fees are allowable surcharges for specific types of payments, generally to schools and government entities (like taxes or fines).

Asking for ID is not prohibited, but refusal to show ID cannot, by itself, be a reason for the merchant to halt the transaction.

We contacted Visa, MasterCard, and American Express about their merchant agreements and asked for clarification. We also spoke with a friend who owns a local bar that, like many other bars in the area, displays a sign requiring a minimum purchase for credit card use. He reviewed his merchant agreement to see if there were any loopholes or discrepancies with what the credit card companies post on their websites. And we asked the companies whether there were any exceptions for educational or government entities, as we’ve received reports from readers that their colleges were charging a “convenience fee” to students who paid with credit or debit cards.

Does this only apply to credit cards? What about when I use my [Visa, MasterCard, American Express]-branded debit card?

We’ve mentioned this before, but it’s worth repeating: the merchant agreement applies to a consumer who uses a debit card with a major credit card company’s logo on it, regardless of whether he signs it or uses a PIN. Note that this is for things like minimum purchases, surcharges, and requests for ID; a credit card often offers additional consumer protections for chargebacks, warranty extensions, and buyers assurance plans.

What’s the deal with third-party processors?

After we posted about a McDonald’s adding 25¢ to credit/debit card purchases, commenter Corporate Shill wrote in to tell us that many small businesses, like bars, use a third-party credit card processor to offset the expenses of purchasing credit card terminals and accepting different cards:

3rd Party CC Processing Companies offer Merchant Bank services to small businesses that cannot afford to offer CC services to their customers, or to businesses that have been denied CC processing by Merchant Bank.

(In simple legal terms the 3rd Party Companies will act as a straw man between the Merchant Bank and the business that actually accepts the CC from the customer.)

In addition to offering Merchant Bank services the 3rd Party CC Processing Company will often provide the data terminals and supporting equipment at a very low cost or even free to their clients. The data terminals, because they are accessing the 3rd Party network rather than an actual Merchant Bank network, can be programmed to accept an even wider variety of CC’s and perform other functions, such as check clearing.

We asked the credit card companies whether a merchant that contracts with a third-party processor still has to adhere to the merchant agreement: MasterCard simply said “Yes,” and American Express said that these merchants still sign a contract with the credit card company regardless of how they sign up for card acceptance. Corporate Shill disputes this, saying that using a third-party processor does not require the merchant to sign an agreement with the credit card companies, but the companies, at least American Express, disagree.

Are government and educational entities exempt from these rules? What is the exception for convenience fees?

MasterCard says:

We allow a “convenience” to be charged by certain educational institutions and public sector merchants, including:

Elementary and secondary schools for tuition and related fees, and school-maintained room and board

Colleges, universities, professional schools, and junior colleges for tuition and related fees, and school-maintained room and board

Local, state, and federal courts of law that administer and process court fees, alimony, and child support payments

Government entities that administer and process local, state, and federal fines

Local, state, and federal entities that engage in financial administration and taxation

Government Services; merchants that provide general support services for the government

In addition, a merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used. For example, a merchant that has a website that accepts MasterCard, Visa and direct debit to a checking account as its three forms of payment, may ask for a surcharge IF the fee is applied to all three methods of payment. The same applies to a merchant that has a physical store that accepts cash, checks, MasterCard and Visa. The store can charge a fee as long as the fee is applied to all four methods of payment.

American Express says such fees are only allowed “in very limited industries, for example, taxes.”

Can a merchant ask for ID with I pay with a credit card? Can I refuse to show it?

We’ve addressed this before, too, and it also bears repeating, along with a little elaboration from MasterCard: “However, to be clear, the MasterCard rule does allow merchants to ask for ID. Our rule prohibits the merchant from refusing to perform the transaction solely on the basis of the cardholder refusing to provide the ID. (If the merchant asks for ID and the cardholder refuses, then the merchant can either perform the transaction or call their acquirer for direction.)”

That being said, this isn’t going to help you when you’re out of cash and the guy at the convenience store won’t let you charge that can of Drank. But reporting these violations, to the credit card company, to your issuing bank, and to us (preferably with pictures), will draw enough attention to the merchant that it will, hopefully, change its way.

Is it against the agreement to have a sign up, but not go through with it? Kind of like when you put up a fake camera or security sign. You’re not going to do it, but people maybe won’t charge small amounts to prevent the charge, even if you never charge it.

I file this in the same pile as those places that put up signs reading “We reserve the right to refuse service to anyone for any reason.” (a ruling in the 90s made those signs technically illegal in my state – anti-discrimination statutes, etc.) Yet many small businesses still sport these, mainly so they have something to point to when a drunken patron is hassling them. If it’s a small neighborhood store wanting a minimum on CC, i’ll oblige to help them out, I know that even offering CC transactions can cost them money. But, yeah, 2$ surcharge on purchases? I’d report that. There’s a reasonable limit – you can’t just make up your won rules willy-nilly.

I live in a college town (Isla Vista, CA) and every little store in town charges a fee and/or minimum and after reading the first post I now confront the owners of the stores but they all continue to add the fee.

I just got into a discussion about this with a local merchant that was contemplating charging a minimum / fee, I let her know that fees/surcharges were against Texas law and her merchant agreement as well as a minimum purchase amount being against her merchant agreement, she came at me w/ the same argument some commenters on here say that I could have no idea what her merchant agreement said, to which I replied MasterCard it’s self says otherwise, and your acquirer is bound by contract WITH mastercard to put that in YOUR contract otherwise your acquirer wouldn’t be an acquirer. I also informed her that favoring another payment method over credit was also against the agreements, but that I wasn’t going to report her for such as I can understand where she is coming from and she DID accept my card. Then right down the street I went to a convenient store to pick up some smokes and they tried to say there was a $3 minimum.. I just shook my head and walked out.. All these small business are whining about hard times in the economy — tough, don’t take credit if that’s how you feel then.

In addition, a merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used.

“

Another darn loophole. In the words of the old Cowboy and Indian Movies the CC providers speak with forked tongue. No CC surcharges allowed, but a convenience fee is allowed.

And then there is that ID crapola. Consumers are told “No ID”. But then the CC language speaks with forked tongue and says “However, to be clear, the MasterCard rule does allow merchants to ask for ID. Our rule prohibits the merchant from refusing to perform the transaction solely on the basis of the cardholder refusing to provide the ID”.

Well guess what, a merchant can legitimately refuse a suspicious transaction (ie somebody buying large quantities of TV’s not wanting to wait till the next day when the models are going on 20% off sale), and to the punk clerk waiting on you… no ID is a suspicious transaction. So you are screwed. And the Merchant Agreement let’s you be screwed.

I won’t use my credit card if I know my transaction is really going to hurt the seller, like for buying a soda and bag of chips. I try my best to use cash when it’s a local business I really care about, also. I don’t buy the third-party contract stuff; I’m sure the “rules” paper got shredded or filed away the day the merchant signed it and never looked at.

You’re trying to be moral and that is commendable. But, first of all, a transaction rarely “hurts a seller” since the transaction fee is actually closer to twenty cents in most cases and the profit on the bag of chips or soda is several times that. They pay fifteen cents for the soda and sell it to you for a dollar. If you pay cash, they likely do not even report the sale and avoid income tax. Second, the merchants who do this are not just violating the merchant agreements but State law in most states. The aggregate of these surcharges adds up to thousands of dollars over several months, only a small portion of which is used to pay off the cost of processing. Thus, the lawbreakers turn a profit on an illegal charge to the tune of several thousand dollars a year (in most liquor stores) and this is to the detriment of the honest competitor who shoulders the cost doing business and obeys the law. Using cash instead of a card encourages unalwful activity, when you were only trying to be a good person.

I wish everyone asked for ID. I used to do it as a cashier whenever I got a card that wasn’t signed. I can’t even believe the people on here who make a huge fuss over it. Guess what – there’s no such thing as anonymity anymore, unless you’re living off the grid. Get over it. If you have a credit card, you’ve already put yourself/your identity at risk – refusing to show ID or to sign your card just means you’re dumb. Puffing yourself up like a rooster talking about “rights” which mean nothing when dealing with a private company – ridiculous.

I dispute surcharges every single time I see one. I will never agree to them in person.

Minimums – well, I can’t really blame the merchants, but I won’t support them or shop at their stores either.

The CC merchant agreement has become like the speed limit law on the interstate :They can’t police every little violation,so its becoming more and more irrelevant.Merchants are trying to shift the cost of the system from themselves to the card holders.This,even though the system is a direct,tangible benefit to their business (by allowing customers to spend more,more often than they would otherwise).I simply refuse to do business with merchants that impose a “convenience fee” for something that is a cost of their doing business. Call it a “fee” ,call it a “surcharge” , whatever,but it means a higher price for me.

If everyone would do this ,it would stop as soon as the next months sales numbers were available.

@hellinmyeyes: I’m the same way. These small mom and pop shops that state a minimum amount to use a CC I have no problem with at all. Even if some don’t have a sign I will pay cash because I believe in supporting small local business. However, stores like WalMart, I wouldn’t hesitate a second to charge a pack of gum.

@dako81: No, it’s not their right. They voluntarily waived their right to charge a surcharge when they chose to take credit. If they don’t like it, no one is forcing them to take credit.

@linus: But it IS in the interest of the credit card companies to discourage surcharges. If this practice were widespread, it would undermine the popularity of credit cards. That’s why it’s in the merchant agreement. I can see that it’s in their interest to tolerate it if it’s only a few local small businesses that are doing it, but I imagine they have it in there so they can squash the merchants for this practice if it got to be too popular a practice.

If a store runs the card and gets an electronic approval, then I suspect that they’re not liable for the loss if the card’s true owner later reports the card stolen. If this is true, then why in the world would a store refuse to sell that ‘truckload of TVs’?

What about Ticketmaster? I doubt they use a third party processor and whenever I use them there is a boatload of fees/convenience charges. This is most likely off topic but I just bought some tixs where the fees were close to 30% of the price and need to vent!

Same happened to me when I was in las vegas, I reported every merchant that I interacted with, upon return THOSE merchants weren’t requiring ID, but others still were, so I reported them as well.. You just have to keep reporting :/

@RonDiaz: I used my credit card a couple times when I went to Vegas a few months ago and never once got asked for my ID except when I was buying beer. But then again that was over Memorial Day weekend and there were a crapload of people in town for the UFC event, so maybe everybody decided they weren’t going to card just for the sake of speeding things up.

I agree regarding Arco – they’ve always charged that fee, at every single one of their stations… is there any way we can mobilize and kick their ass for that? I mean, Arco is a pretty big company, it’s not some mom and pop store….. wouldn’t it be worth it to make them the big deal in the media about charging illegal surcharges, scaring the other guys that do it into changing their practices?

This is true, I happen to be one of those people. And because of that I would much rather the merchant just NOT accept credit cards instead of posting MC logos on their door only for me to find out I can’t use my mastercard there because they have a minimum even though they’re not allowed to. If they would just stop accepting credit cards and take their mastercard logo stickers off their window, I wouldn’t have walked in in the first place. I realize that this will hurt the business, but the minimum it’s self is going to hurt because I’m just gonna walk out and never shop there again anyways.

I rarely carry cash, and I’ve just gotten to the point of avoiding any shop that pulls this crap. It’s against the rules, period. If I want to use my debit card for a .50 cent pack of gum, I’m allowed to, unless you want to be a whiney store owner and say “Not in my store.”

Fine, then next week when I buy a keg for my house party, I’m not buying it here either.

“Oh the economy is so bad!” yet you’re willingly turning away paying customers? Today I’m buying a 3 dollar sandwich, tomorrow I’ll be back to buy a couple bottles of wine. I once had a guy tell me his ‘minimum’ was 7.00 when he rang me up for a six pack that came to 6.85 with the deposit. I left the thing on the counter and walked out.

Here’s a slightly different variation that seems to include multiple tactics. I was at a bar this weekend and they had signs stating that there was a $20 minimum charge for credit cards, but also an mandatory 20% tip added to the bill. Seems like the minimum is against the rules, but what about the automatic gratuity?

If that 50 cent pack of gum is going to cost the merchant 25 cents in fees, I’ll oblige and pull out some cash (or go without gum). All this merchant agreement crap on the part of the consumer just sounds like petty whining to me.

Well, the merchant makes 25 cents off of the pack of gum and breaks even. So still no argument if the “minimum” were 50 cents, but it’s not. Usually it is 5 to 10 dollars. And they even charge a surcharge on top of those transactions at times. It adds up to thousands of dollars and is an illegal practice in most states. Note, I’m not talking about the merchant agreement. It is acutally against the law. Even if what you are saying was true, the law abiding merchants would be taking the loss and the crooked stores would benefit. Pretty whining to you, except when you add it all up. If I cheat everyone in the US for 50 cents, I have hundreds of millions of dollars. Are you going to be a whiner, or are you going to let me cheat you for fifty cents?

@EarlNowak: Indeed. I love Cooter Brown’s, but I hate these signs, and I hate even more that they don’t count purchases in the total (although with all that beer, spending $20 has never been a problem).

@SkokieGuy: so, lets see – there is a show I want to go to. The tickets are on sale via ticketmaster. I, therefore, need to purchase via ticketmaster to go to the show. I, therefore, am stupid and weak.

Riiiiiight.

I go to the box-office when I can to buy sans fees, but that’s not always feasible. It’s a fairly unavoidable practice if you want to see something at a larger venue. It doesn’t make you stupid and weak because you have to pay it to get the tickets online.

The last time I was confronted with a 50 cent fee for a $5 purchase I told the cashier it was illegal. She told me it was the owner’s policy. I opened my cell phone and started to call a number. She asked me what I was doing. I said I was calling the state police to have her arrested for consumer fraud. She opened the cash drawer and handed me fifty cents. The minimum CC purchase sign was taken down by the next day. YMMV

@SkokieGuy: I’m pretty sure it’s just a warning letter, but I was also told that a handful of complaints can quickly lead to more drastic action, like getting the merchant’s ability to accept credit cards revoked.

That’s also why I asked readers to keep sending us these stories. The more we write about this stuff, the more likely it is to get more widespread attention.

What I really hate is when the cashier has already ran my credit card, handed me the receipt and had me sign, and then asks to see my ID. I don’t want to make a big fuss, and they are still holding the items that I have now already paid for. I would much rather have them tell me up front that I will need to show ID if I am using a credit card. That way I can tell them nevermind and walk out of the store.

Ahem…
California Business And Professions Code Section 12024.2
(a) It is unlawful for any person, at the time of sale of
a commodity, to do any of the following:
(1) Charge an amount greater than the price, or to compute an
amount greater than a true extension of a price per unit, that is
then advertised, posted, marked, displayed, or quoted for that
commodity.
(2) Charge an amount greater than the lowest price posted on the
commodity itself or on a shelf tag that corresponds to the commodity,
notwithstanding any limitation of the time period for which the
posted price is in effect.
(b) A violation of this section is a misdemeanor punishable by a
fine of not less than twenty-five dollars ($25) nor more than one
thousand dollars ($1,000), by imprisonment in the county jail for a
period not exceeding one year, or by both, if the violation is
willful or grossly negligent, or when the overcharge is more than one
dollar ($1).
(c) A violation of this section is an infraction punishable by a
fine of not more than one hundred dollars ($100) when the overcharge
is one dollar ($1) or less.
(d) As used in subdivisions (b) and (c), “overcharge” means the
amount by which the charge for a commodity exceeds a price that is
advertised, posted, marked, displayed, or quoted to that consumer for
that commodity at the time of sale.
(e) Except as provided in subdivision (f), for purposes of this
section, when more than one price for the same commodity is
advertised, posted, marked, displayed, or quoted, the person offering
the commodity for sale shall charge the lowest of those prices.
(f) Pricing may be subject to a condition of sale, such as
membership in a retailer-sponsored club, the purchase of a minimum
quantity, or the purchase of multiples of the same item, provided
that the condition is conspicuously posted in the same location as
the price.

I’m sorry, but I work for a small business and I patronize small business as much as possible, and I feel that we have every right to require a minimum purchase amount for plastic, though i think the surcharging/fees is BS. We are NOT walmart people. In a store that maybe does a couple of hundred dollars a day in sales, if it’s a good day, we can’t afford to lose so much money in merchant processing fees. I had someone come up to me with 20 cents worth of merchandise and try and put it on a credit card. I looked at them like we were crazy. We’d LOSE money on a purchase that small. And hello, we have to pay the CC processing companies first, then we have to try and cover the cost of merchandise itself, never mind trying to pay rent, electricity,employees etc etc. A $5 or $10 minimum fee is not asking that much.

Get over it people and carry cash, for crying out loud. There was a time when plastic didn’t exist, and people got on fine then. I almost never use my debit card and pay with cash, it curbs my spending to actually SEE what’s in the wallet as opposed to racking up a balance on a credit card. No sir, you credit card companies are not going to ever make any interest off of me or get me into debt. I do take a special delight in using my debit card for super small transactions at wal mart. Might as well use all that small change leftover from bills in my account for something… and having worked there and knowing how they treat their employees, and how CHEAP they are.. yes, pay out the butt in merchant fees. Somehow though I figure they probably make it up in sheer volume alone.

You are relatively anonymous here so if you could answer a few questions, perhaps I could sympathize with you. How much profit does your business make in a year? How much profit do you make off of credit card sales? How much of that profit is paid in transaction costs? Why don’t you simply charge an extra fee for the rent, electricity, or the cost to pay the night shift to keep the store open when I come at night? How much profit do you make off of a $10 purchase? How much of that profit goes to Visa/MC… 25 cents, maybe? I think the rogue merchants need to “get over it” and obey the State laws and abide by the merchant agreements.

@johnva: No I was talking about discrimination in the way that they can refuse service to any one at any time. If you read my whole post you’ll realize I said that I agree that the contract that they signed (willingly) should be upheld.

@linus: oh, we take plastic- we have to, no one buy me and my grand parents seems to carry cash these days. But no, we won’t let you charge a dollar on it. I don’t care what the merchant agreement says, they’re the ones making all the money, off of you, and me. they can go stuff it.

@Yurei: A lot of businesses back before credit cards were common offered a line of credit to their regular customers. You could walk in, pick up the few items you needed, the store would put it on your tab, and you’d pay up once a month. It’s been about 10 years since I’ve lived there, but in my hometown we had a video rental store that practically ran that way. The owner knew pretty much everybody in town, and I’d often come in and get a movie and pay for it when I returned it. I doubt that very many small business owners are willing to do this now because they don’t want to accept the risk of those customers never coming back to pay their monthly tab. (Which is basically what the credit card companies are now doing – accepting that risk.)

I have about 20 emails back and forth with AUM’s customer support about this. I have never been so frustrated with a company in my life. Reported them to Master Card about a month ago. Yet I am still forced to pay a $7.50 fee if I want to use the internet to pay them. I am referring to the guy’s from this article:

…or you could explain you weren’t aware of the policy and ask for an exception or better yet: carry a small amount of cash on you at all times. Does anyone remember, oh, say five years ago when debit and credit cards weren’t so widely spread and responsible adults were expected to carry cash?

My father owns a small business and believe it or not, despite the long hours and hard work people like him put in he’s in no place to be handing over money to a credit card company for every small transaction just because a customer couldn’t be bothered to spend two minutes at an ATM. A lot of family owned businesses operate on small margins and donating a percent of each sale to a mega-corporation tends to put a dent in your profits.

I don’t know where they got the information that pin based transactions are protected by the no-surcharge rule, this is not the case. Pin based transactions are not using the visa/mastercard aspect of the card. A bank debit card with the V/M symbol on it CAN be run through the V/M system and can not be subject to minimum charges or surcharges, but a card ran using the pin, whether it has the V/M symbol on it or not (remember the old ATM cards with no symbol?) are used the same way any other plain ATM card is used and run through a different system. ARCO does not have a V/M card processor, they ONLY accept PIN based transactions and can charge the 45 cents to do so.

As for checking ID, a merchant is NOT protected from chargebacks by asking for ID, in fact, they’re setting themselves up for a charge reversal. The process for a chargeback is consumer says “wasn’t me”, CC co. requests SIGNED receipt from merchant, CC co. matches sig. No match means chargeback. Arguing back with “but I checked his ID” won’t prove anything. Matching every signature of CC owners is a merchant’s best protection. I don’t show ID because I don’t want everyone to see my address when I make a purchase and because I refuse to submit to yet another false sense of security by letting every retail employee check my driver’s license.

@Yurei:
@linus: That it’s too expensive to let a customer charge a pack of gum on his AmEx is a valid complaint, and there’s definitely room for debate whether a minimum purchase requirement should be allowed in the merchant agreement.

But currently, it’s not allowed, and merchants who require them are breaking these agreements.

I guess one of the things I should add that really sucks for some of these businesses is the cost of doing business with American Express. They want 6% of the transaction if the business wants its money ASAP, 4% if the business is willing to wait 10 days to get the money, or 2.5% if the business is willing to wait 30 days to collect the charge. Really?? 6% or 30 days?? Sucks to be the business owner stuck with that decision. I’m not sure how the other processors/banks do it, but this makes me avoid my Amex unless I really need some benefit of that card.

@Hate_Brian_Club: Credit/debit cards have been widely accepted for longer than 5 years. I’m 27 and I do not remember a time when they were not widely accepted. I’ve had a debit card attached to a checking account (that has been used as my main source of payment) since I was 16. That was over 10 years ago, plus I remember my parents paying for a lot of stuff with debit cards (or checks) long before that.

The counter clerk at the Post Office asked me for ID with my Visa this past Monday because the signature on the back of the Visa is faded and hard to read. When I told her Visa said she couldn’t require me to show it, she just laughed and said (in a nice way) “I can do anything I want to.” and we both got laughing good about that because she’s right.

@hellinmyeyes: It really depends on the type of business (retail, online, wholesale…). I was recently told that Amex transaction fees were 2.9% and money in our account in 2 days. This is for a business that does not do very high volume credit card transactions.

@Yurei: While I understand your sentiment regarding small businesses, you are also advocating a practice that is very one-sided – don’t dare do it at my store, but feel free to do it to walmart because they’re bigger and they can absorb the cost easier. I actually try to use local small businesses when possible as I grew up in a family that ran a small business and a farm, but I’m also in favor of equal footing and capitalism. I wonder how many customers no longer darken your doorstep due to your policy.

I’ve never run into a problem using my card for one beer or a transaction under $10, because I tell the bartender I’m going to round the total up to $10 using the tip, which they’re usually okay with. If I’m at a place like Cooter Brown’s, well, I just drink more. Or I just drink at bars that my friends own.

First of all merchants CAN get slapped with higer fees for allowing the fraud to occur. Those highter fees are across the board and will last for yearS. At the really obnoxious, frequent fraud award level, 1% of your annual sales for 5 years in higher transaction fees (penalities) versus a couple TV’s on a suspicious CC transaction that was actually fraudulent/stolen is non-win situation for the merchant.

( Is your local mom & pop restaurant or auto body shop going to have this level of repeated fraud? NO. But the Merchant Bank is literally screaming at them about fraud prevention and the potential costs to the merchant specifically to keep them on the defensive. Electronics, Auto Parts etc stores, due to the nature of their stores and price of the products sold, are always at risk for such rampant widespread fraudulent or stolen cards that they could be hit with penality fees at any moment. )

Secondly, if the fraud is especially egregious the merchant can be on the hook for the entire transaction from the start.

Bottom line, consumer is protected from fraud (within limits), but the merchant is always exposed.

@Yurei: I do agree that it’s kind of nasty of someone to walk into a small business and put a pack of gum on an AMEX. But I still don’t believe it’s good customer service for you to refuse the sale. Yes, you might lose a few cents on that (though you’re not going to lose a lot, unless hundreds of people a day do this). But you’re also not alienating customers who might come back and actually give you more business in the future. Maybe you could have a sign that says something like “We ASK that you not use a credit card for purchases under $5 – we lose money on these sales”? You wouldn’t actually be refusing the small sales, but you would be informing your customers about how they impact you. I bet many/most people would be willing to use cash just out of goodwill, and you wouldn’t have to piss people off.

@johnva: I agree with you there. I’ve never been opposed to a minimum transaction for credit cards. A lot of stores also have those “take a penny – leave a penny” trays, and I’ve seen cashiers just grab some change from there to pay for a small transaction rather than running a credit card.

Minimum purchases are the bane of my existence. I do not carry cash unless I’m going to a thrift store or someone handed me cash for being such a great guy. Hell, I would be fine with a “convenience fee” (within reason), since running to another store or ATM is far less convenient when I’m already in the store.

Anyone arguing in favor of or defending merchants for having a minimum because of fees is ignoring the fact that the fees should be estimated/factored into the cost of doing business. If they are not doing this, they are not running their store properly — it’s that simple.

You can make the argument that other companies get a better rate, but the store agreed to the terms and conditions.

Clearly they are not losing money on the deal.

@linus: If your parents processed as many credit transactions as McD’s, and others… they could.

@Troy F.:Agreed, this result would be even more inconvenient, I think the ideal outcome would be for the CC company to bring the violation to their attention and explain they can not do this anymore.

@Yurei: But why should I handle my money in a way that’s inconvenient for me? I don’t handle my finances in order to oblige merchants, and I can find enough merchants that are interested in obliging me that I can avoid those that aren’t. The reason the CC companies forbid these practices is because they discourage use of their product. And for many of us, that doesn’t mean we switch to cash, it just means we find someplace else to spend our money. What’s our incentive to shop at an equivalent place that’s more restrictive?

One of the issues ive had is paying my rent via credit card in the past. It’s always included some sort of additional fee (which inevitably makes it not worth it).
Is this in violation of the agreement? Or can they simply get around this by calling it a processing fee or some such?

I sell big ticket stuff. Means relatively low voluem of sales and a really, really high % of CC transactions. I can very easily factor the cost of CC transactions right into my product price. So do my competition because their selling condiditions etc are very similar to mine.

Small mom & pop corner convenience store. Sure they can factor the CC fees into their product prices. Let’s say for a moment the base fee is $0.25 plus 3% of the transaction amount. A $1.00 pack of gum sold by itself should be marked up HOW MUCH to cover the CC fees? What about customers like me that buy the pack of gum, plus two sandwiches, 3 drinks and $50 in gas, how much CC fees shold I pay? Then there is the guy that pays cash for his gum versus the guy that buys 4 sandwiches, 6 drinks plus one pack of gum with cash.

For the really small sales business, with sales rates that range from between $1 to $100, any fair and equitable method of adding the CC fees is a bit difficult calculate. I know I would not want to devise such a system, especially if I was working off of small margins.

BTW, CC companies have different fee structures, they just don’t let everybody graze in the good fields.

Having read Consumerist articles about the illegality of credit card surcharges and minimum purchase amounts, and seen the same thing in the Mastercard merchant’s agreement, I contacted Mastercard. They then replied saying that (here in the UK at least) merchants are allowed to have a surcharge that reflects the cost of processing a transaction.

Which I thought was stupid, given that it’s in contravention of their published UK merchant’s agreement.

@floraposte: Attitudes like this is part of why more and more businesses are homogenized, operated by a skill-less, uninterested workforce and owned by a corporation headquartered in some far-off tax haven. Is carrying $20 so hard?

Like Corporate-Shill mentioned, larger businesses receive better deals from CC companies and can afford for you to put a cup of coffee on your card. It’s not that small businesses don’t want to oblige you – they have to factor in that on top of competing with nationwide retailers they also have to shell out yet again to the credit card companies and deal with the reams of paperwork that comes with the transactions.

@Voyou_Charmant: I never carry cash either. I am more likely to spend (or lose) cash than I am to overspend on my debit/credit card.

With that said… I would much rather have a store say, “you need to purchase a soda along with that pack of gum, otherwise it won’t be profitable for us” than “no matter how much money you are spending and how profitable your purchase is, we are still going to charge you a $1.00 fee that you will get nothing in return for”. A minimum purchase amount allows me to choose another item which will be of use to me later, a surcharge gives me absolutely nothing (except perhaps the ability to make a purchase that I should be allowed to make anyway).

Awesome, fellow Louisianians on The Consumerist. Baton Rouge here. And to contribute to the actual story…

I hate min purchases. I was hiking/walking around at Hodge’s Garden in Florien, La and came up to the gift shop area looking for a Powerade or two. They had a $20 or $25 min purchase requirement and I was cashless (brought just enough cash to get in the gate). To add insult to injury, the water fountain was broken, but I did manage to find a faucet somewhere on the grounds. :) From that day forth I’ve made it a point to carry around $20 or so in cash.

SOLUTION, IN THREE EASY STEPS: 1) Provide an essential and popular service.2) Refuse to take plastic3) Put an ATM in your place of business

The local pancake place makes such awesome breakfasts that it can get away with this. On any given morning, there are lines out the door with people waiting to get in. They expanded twice last year, and plan to add another 15 tables by the end of this year. Other waffle/pancake joints in town just don’t compare. It’s that good. Everything is made from scratch and/or bought locally, including the syrup. No fake maple “flavored” syrup there (they’d kick Mrs Butterworth’s ass if she came within 100 yards of the place). And yeah, it’s expensive ($15 per person is what I plan for). But yeah, oh yeah is it worth it. People plan their whole vacations around going to this place. But don’t bring plastic, unless it’s your ATM card. Otherwise you’re gonna be extremely embarassed.

The cool part is the menu has transcripts of all the credit card processing company reps’ calls trying to convince him to take plastic. It’s a beautiful thing how he destroys them. They just don’t seem to get the fact that he has absolutely no need for the crap they’re trying to pull on him.

I don’t purchase anything from stores with a minimum. I rarely carry cash as well. Arco here has cheaper gas but charges .45-$1.05 for credit card purchases. Plus they pump your gas BUT you still have to go inside to pay! Bottom line is minimum charge is bad for business. How many people a day are actually paying for one .25 pack of gum?! Enough for a minimum charge hassle? NO!

If the debit card is ran through as a pin transaction, the merchant can do a surcharge as long as it is not carried over the Visa interlink or Maestro atm network or against state law. If the pin transaction is carried over the Nyce, Star, Pulse or other ATM network the merchant can do a surcharge

You’re not harming large merchants when making small purchases. Generally only smaller merchants pay a per transaction charge on top of the interchange fee. So Wal-Mart is likely paying roughly 2% whether it’s 50 cents or 50 dollars.

As far as Arco…they only accept transactions with a PIN. Despite what the original article said, it is absolutely legal to charge a fee when running transactions with a PIN, provided you do not also offer no-PIN transactions.

So, a local gas station now has a cash discount of about 4 cents a gallon. I can’t tell if the prices posted on their billboard are the discounted prices or the regular ones. So, is it allowed to offer a discount for cash with a credit card, even though it’s effectively the same as a credit surcharge? I’m not complaining, the place has cheap gas already and my bank’s ATM is on the way.

I would have written into the Consumerist with my own recent run-in with a “minimum purchase” amount, but there was no sign posted in the store with this policy. It was only told to me when I went to make my purchase, which was $1.30 under their minimum and included animal crackers for my two year old, who was audibly upset when I had to hand them back and walk out without them.

If they hadn’t laughed at me when I informed them that they aren’t allowed by their merchant agreement to enforce a minimum purchase amount, shoved a candy bar at me and told me to buy that as well and they’d take my card, or if they hadn’t shown an enormous amount of callousness about my daughter crying because I didn’t have quite enough cash on me to cover the crackers, I might not have bothered reporting them.

I can tell other Consumerist readers that the VISA rep that I spoke to was very helpful in taking my report, and it wasn’t a hassle or anything to go through the reporting process.

The funny part of the whole thing is that more than half of my purchase amount (had I completed the transaction) would have been in two boxes of imported tea I picked out SOLELY because I knew I had to use my credit card because I’d gone through more of my cash at the store next door than I’d anticipated, and I’d promised my daughter a (well-deserved) little treat that day after we finished at the first store.

I spent the same amount of money with a different retailer to get her a treat she enjoyed much more than the overpriced crackers, and that second retailer gladly took my credit card in exchange for the goods.

If you don’t like the terms of the merchant agreement, don’t accept that card. But you certainly aren’t allowed to make up your own rules, and I hope that VISA slaps down the retailer whose employees were rude and condescending to me.

@jhazelton: If they add the fee to an existing transaction that you don’t approve (such as after the fact at a restaurant or one of the now numerous restaurants where you don’t have to sign the receipt), file a chargeback.

Personally, I think the merchant agreements with regard to minimum transactions is unfair to the merchant. We should be going after the credit card companies for charging high transaction fees, on small transactions. It’s completely draconian to force a merchant to accept transactions so small, and still charge a fee that swallows up their profit. Yah, the merchant signs the agreement, but what choice do they have? They have a powerful corporation on one side, a self-centred customer on the other, and different large corporation looming over them that will be more than happy to put them out of business. There are some examples of minimum fees here that are outlandish (I’d say anything over $5). But, as I said before, carrying $20-40 in your pocket is a standard of urban survival. It’s like having a spare tire and a flashlight in your car, or a box of wooden matches (strike anywhere) when you go into the woods.

Draconian? A 25 cent fee for a transaction by a credit card company with whom the merchant voluntarily enters into an agreement? Draconian??? The “powerful corporation” forced the merchant to accept the transactions of the “self-centered” customer, when he lacks the cash to buy… say … a single coke. So the merchant charges $1.00 for the Coke, with a profit of 85 cents and then, with the same cold heartedness with which Draco hung the Athenians by their thumbs, the big corporation reduces that profit to a mere 60 cents! I will take your advice and carry 40 dollars in my wallet. Next time I make a purchase, I’m just going to give my wallet to the merchant and let him take what he thinks is fair.

@Hate_Brian_Club: Around here, there’s no shortage of locally owned businesses that adhere to their merchant contracts, so your contention that I’m killing off local businesses by preferring to shop places that are convenient for me is mistaken.

But I don’t understand why the store gets to make decisions based on practical capitalist principles and consumers don’t. I understand that it’s tough for small businesses, but it seems like that the argument is that customers have more obligation than business–that business doesn’t have an obligation to make things convenient for customers, but customers have an obligation to support a business that inconveniences them; that businesses have a right to handle their finances in ways that keep them as profitable as possible, and customers don’t. And I don’t accept that.

Setting aside the contract breach for a moment, if a business were to decide that it’s more profitable to add the fees and lose a few customers then to go fee-bare and retain those customers who object, I don’t object to that–it’s acknowledging the free agency on both sides. But that doesn’t seem to be what you’re advocating.

In my state (Maine) requiring a minimum is against the law. So it is not only a merchant agreement (contract) issue but a legal one as well. It would take going to the credit card companies and having the law changed to make merchants be able to require a minimum.

I used to swing by a coffee shop every day on my way to work. It was a family owned place (Sippers on Gate Parkway, Jacksonville – if you’re interested!).

Everything about this place just screamed “we like our customers and want to see you come back”. Little touches like putting a little sticker over the hole so hot coffee doesn’t slosh out while you’re driving.

Trouble is, I typically would only get a simple coffee, at about $1.50, and I rarely had cash.

So rather than dick me about with minimum purchase fees, they started me a tab. Settled up every week or so. That shaved time off my morning routine, saved Sippers from racking up fees on my little purchases, and ENSURED that when I wanted something else like a bag of coffee or an afternoon latte, I went back to them.

Why should I be forced to go to the bank and withdraw cash? All of my money is handled without the physical bank: Direct-deposit for paycheck, pay bills by ePay (checks when forced), manage my accounts and credit card online.

I pay everything with my debit or credit cards. EVERYTHING. I have no desire to go to a bank every week just to save you a few cents.

You can either not accept credit/debit, or complain to the companies about these transaction fees. In the meantime I’ll be happy to a) report you to the companies and b) stop shopping at your place.

Visa
Phone Number: 1-800-VISA-911 (International: 1-410-581-9994) and you can also call the number on the back of your card
Mailing Address:
Visa U.S.A. Inc.
P.O. Box 194607
San Francisco, California 94119-4607

Online: Your card issuer’s website may let you send them complaints about merchant violations and start a dispute if your were charged a fee to use your card.

MasterCard
Phone Number: 1-800-MASTERCARD (International: 1-636-722-7111) and you can also call the number on the back of your card.

Online: [www.mastercard.com] (Also you may be able to dispute a charge online if you were charged a fee.)

Last night, I was at one of my favorite small local stores. This is one place that actually has read their merchant agreement; they’ve put up a sign that they can’t accept unsigned cards, and they don’t have a minimum purchase amount.

As I came in, another customer was buying something small and paying with credit. The sales clerk asked him if he could use cash, because of the expense of credit processing. He said no, and paid with credit, and they processed it despite being a possibly negative-profit transaction.

(Later that night I bought some stuff; the total was high enough that I’d normally put it on a card, but I paid cash instead to counterbalance the earlier customer a bit.)

FYI, some states have passed laws that require ID when using credit cards for payment. So it’s possible they’re asking for ID because they have to. And they really can refuse your payment on that basis.

I quit worrying about minimum transaction requirements once I realized that Visa and Mastercard don’t really enforce them. I just buy the minimum or shop somewhere else. Can’t say I’ve ever run up on a transaction fee, except at my college and various government agencies, but I’ve known for a long time those are allowed.

@Yurei: If you’re not happy with that clause of the merchant agreement prohibiting minimums, then don’t sign the agreement, and don’t accept credit cards. Or just accept Amex. I wonder whether you’d make more money if you just accepted Amex with their higher interchange rate but with a fully legal minimum.

To the author: what’s the difference between just “summary” and “executive summary?” Why would you want to use that buzzword?

Since credit card transactions are sometimes negative transactions, and customers get het up about minimum purchases,
I no longer accept credit cards.

Consumers want us to pay for the pleasure of their company…this is not capitalism. It’s madness. And then to complain about it, seems even worse.

When thinking about this you have to realize that the consumer in this situation is the MERCHANT, not the guy buying gum at the corner store. The MERCHANT is a customere of the credit card company, and that company is screwing him pretty badly.

Consumers getting irate about small businesses trying to stay afloat seems a bit absurd to me, when the large credit companies in question tend to take advantage of, and prey upon, both consumers AND small merchants. This is where the fault lies, not at the counter of your local mom-and-pop bodega.

Can a merchant charge a fee when your card has been declined? In my case I was attempting to pay the company the provides billing for the water and sewer service in a manufactured home community where I own a rental home. I fat fingered my credit card number and the charge was declined. The companies policy is to charge an $8 dollar fee for declined charges, or in this case a simple mistake on the telephone keypad. The automated system did not repeat the numbers I entered it simplied reported that the charge was declined and transfered me to a customer service rep. The merchant also charges an $8 convenience fee when the charge is authorized. So in this case it cost me $16 to pay the bill.

The above website lists the following 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas as having statutes for A “NO SURCHARGE RULE” FOR CONSUMER PURCHASES.In these 10 states it is completely illegal to do so.

As a small business owner, if I take a Credit card or Debit card and our transaction is $300, the cost to me is $10.86 plus $.25 per transaction. appoximately. We are a service business and most of our transactions are $1000. We make $110 on a $1000 transaction. So If I have to pay to take a credit card, $36.20 plus $.25 I am down 33% on my revenue, just by taking a credit card. Now you want to talk taking checks, thru Telecheck is even worse. They want $125 per month plus up to 5% per transaction.
I dont think its right for me as the business to pay for the customers’ convenience.

As a small business owner, if I take a Credit card or Debit card and our transaction is $300, the cost to me is $10.86 plus $.25 per transaction. appoximately. We are a service business and most of our transactions are $1000. We make $110 on a $1000 transaction. So If I have to pay to take a credit card, $36.20 plus $.25 I am down 33% on my revenue, just by taking a credit card. Now you want to talk taking checks, thru Telecheck is even worse. They want $125 per month plus up to 5% per transaction.
I dont think its right for me as the business to pay for the customers’ convenience.